NZD/CAD just broke above strong resistance, but does it have enough juice to turn into a true breakout or will the bulls get faked out?
Upside Breakout on NZD/CAD?
On the four hour chart above of NZD/CAD, we can see a clear rally higher after the pair bottomed out just above the 0.8750 handle back in March. The broken consolidation area from March (between 0.8950 – 0.9000) was finally retested last week, and after a little bit of chop, the pair is making moves above the 0.9000 major psychological level. Is this a legit breakout or fakeout in the works?
Well, we’ve got the quarterly CPI data from New Zealand data coming soon, which may be the main driver for the pair in the short-term. Expectations are for the number to come in hotter than the previous read of 0.5% at about 0.8%. If the number comes in any hotter than that, expect to see buying support for the Kiwi short-term as traders may increase bets that the RBNZ may reconsider their monetary policy.
Of course, if the inflation read does break trend with what the rest of the world is seeing and comes in below expectations / the previous read, then tell Kiwi bulls watch out below as the pair could tumble in the short-term.
We’ve also got the latest monetary policy decision from the Bank of Canada tomorrow, likely to hold their short-term rate at 0.25%. Some expect the BOC to start tapering their asset purchases by another 1 billion CAD to just 3 billion CAD per week, and if that scenario does play out, we could see short-term Loonie strength.
So, we’ve got two top tier events on the way, and if we see a better-than-expected read NZ CPI and a surprisingly dovish BOC meeting tomorrow, the odds do favor NZD/CAD bulls, and the pair could make a go for the next resistance area around the 0.9100 – 0.9200 handle within a few sessions.
If we get the opposite scenario of weaker-than-expected NZ CPI and an optimistic tone from the BOC/policy tightening, that upside break is likely turn into a fake that could draw in technical sellers. They would likely take the pair back to the 0.8900 handle, which may trigger more technical selling as the pair would then break the rising ‘lows’ pattern.
So, we’re watching those events for a potential swing setup in NZD/CAD? Which way are you leaning on the pair: Breakout or fakeout? Let me know in the comments section below!
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